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Summary for Week Ending 26th July 2003
This week we saw the markets is a morose jittery mood with
good swings in both directions, but failing to move anywhere. There was
an amusing news item saying the Fed would move interest rates to zero
if that's what it takes to move the US economy, but it does lead to the
question of What Then ? Negative rates ? This will be interesting to watch
as it will have a bearing on the longer term health of the markets as
a whole.
Last week I was discussing the double top that has formed in the S&P
and the fact that this was an unreliable formation and the DJIA was looking
more bullish than bearish. The market action this week manage to bear
out this mixed consensus by essentially going nowhere in a hurry. The
week was marked by some impressive intra day swings up and down but all
they managed to do was to cover any movement that may have been gained
or lost the previous day. To highlight the level of the compression and
complexity we have been seeing in the markets, the S&P has traded
the same price for the past 7 trading sessions and the DJIA has traded
the same price for the past 17 trading sessions. This is a market that
looks like its doesn't know which way to go. The longer the compression
continues the longer we can expect it to continue as this behavior, just
like a bullish or bearish mood, can build its own kind of momentum, due
to participants also unknowing and unwilling to place a solid position.
What we do know is though, that when this market comes out of its malaise
the strength of the reaction will be directly related to the length of
the compression period. This can be thought of as energy building up in
the system and being suddenly released and so whether up or down, it will
take off like a bandit.
Following on from the above the obvious question is of course when can
we expect the corrective phase to end and we get back to normal behavior.
Looking at this weeks S&P chart, I have marked up some of the more
relevant time frames that are evident in the current movement. We can
see that the action has been mirroring itself until now where we see that
there is no apparent end to the current swing. Assuming that a significant
turning point is not achieved on Monday then we can project forward with
a 27/8 day range which indicated around the 10th of August. This is curious
as we have the dominant 153/4 cycle terminating again on the 13th of Aug
so this time frame will be interesting to watch. Until then, I'll just
be watching and waiting for an indication that this suspected 'wave 4'
behavior has expired.
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